Dividend lovers have a lot (perhaps too much) to pick from, even as the TSX Index hovers new heights. While the Canadian economy may be “lying flat” rather than rocketing, I think that the potential for a solid economic recovery is being discounted, especially when it comes to the top retail plays.
Retail has been a tough industry to be in over the past few years, but there have been glimmers of hope for investors looking to place their bets on a potential comeback. That said, it’s difficult to time a discretionary play in the midst of an uncertain economic climate. I view numerous retail plays as having multiples that are just too low for their own good.
With low multiples come low earnings and sales growth expectations. And with that, the potential for positive surprises. So, without further ado, let’s check in with low-cost retail plays that don’t have much in the way of expectations as they push their way through what could be a better-than-feared quarter to come.
Canadian Tire
Canadian Tire (TSX: CTC.A) is probably my favourite discretionary (nice-to-have goods) retailer to pick up various home goods. The stock itself has been sagging since peaking back in mid-2021. And though the coast isn’t yet clear for the Canadian economy, I view CTC.A stock as a potential deep-value play for those who also want juicy passive income. At writing, the stock yields 5.14%, which is on the high side, thanks in part to the headwind of higher rates and less-than-stellar demand amid inflation.
More recently, the retailer reported its first-quarter (Q1) earnings, helping shares surge almost 7% in a single session. Indeed, the Q1 numbers were not at all bad, given what the firm viewed as a “challenging consumer demand environment.” While the numbers weren’t mind-blowing, the company did play a rather tough hand pretty well. And that alone seems to have been a win in the minds of investors.
Looking ahead, I’d look for the firm to do its best to make the most of the challenging situation by giving consumers bang for their buck. The company noted that it’s focused on offering such value to draw in more customers in an economy that could go from cool to lukewarm over the next 18 months.
All considered, I liked the quarter and think the post-earnings reaction could be the start of something sustained move past the $150 mark.
Metro
Metro (TSX: MRU) is a grocery play with a $16.4 billion market cap. The company reported Q2 earnings just a few weeks ago, and the numbers weren’t terrible, even as profits declined 14.5%. Weighing down the quarter were elevated expenses due to supply chain bets. In due time, I suspect such investments could translate to better margins down the road. In any case, MRU stock continues to stand out as a relative bargain in a market that may lean into staples more than discretionaries.
With a 0.04 beta (one of the lowest I’ve come across lately), which entails shares are less likely to be influenced by moves made in the broader markets, and a 1.83% dividend yield, MRU stock stands out as a great defensive staple stock to hold if you’re looking to balance some risk in your portfolio.
